Britain’s accounting watchdog has fined Deloitte over failures in its audit work for Johnston Press but has itself drawn criticism after it declined to name the business, which was one of the UK’s largest local news publishers until it collapsed into administration in 2018.
The Financial Reporting Council said Deloitte breached its duties when it failed to properly audit the cash held by the publisher’s pension scheme and the value of its assets. It fined Deloitte £500,000, which was reduced in a settlement agreement to £362,500, and reprimanded both the firm and an unnamed audit partner.
The sanction is the latest fine for Deloitte, which was ordered in September to pay a record £15m for committing serious misconduct in its audits of FTSE 100 technology group Autonomy. The Big Four accountants — which also include PwC, KPMG and EY — have faced regulatory intervention after a string of corporate collapses and accounting scandals led to questions about the quality of their audits.
The watchdog did not name Johnston Press, which owned publications including the i and The Scotsman, in its announcement about the sanctions, but its identity was confirmed by a person close to the matter. It is believed to be only the second time the FRC has made such a move.
“There is a worrying trend emerging that does not show that the accounting regulator is embracing the public accountability and transparency it ought to be,” said Prem Sikka, a Labour peer and accounting professor. “The stakeholders of any entity subject to accounting problems need to be aware.”
The FRC found that Deloitte failed to properly explain why it allowed Johnston Press to reduce a large deficit in its defined benefit pension scheme from £90m to £27m. The body said the deficit was a “significant area of audit risk” and that Deloitte’s quality control review processes had fallen short. It ordered Deloitte to prepare a report explaining how its quality control team checks its audit work for listed companies.
Johnston Press agreed a pre-pack administration deal in November 2018 with large debts, having long caused concerns about its future. Administrators of Johnston Press sold the group’s assets to JPI Media Group, a company set up by the publisher’s lenders, while the Johnston Press Pension Plan, which had about 4,800 members and an estimated deficit of £305m, was taken over by the Pension Protection Fund.
The FRC pointed towards legislation that governs the regulation of UK auditors when asked about its decision not to name the company. The rules state that the watchdog can decide not to identify a company if it considers that naming the business will have a “disproportionate” impact on the reputation of the individual who audited it.
The FRC said that Deloitte’s breaches were “not intentional, dishonest, deliberate or reckless” and said the partner in charge of the audit “has a good compliance history and disciplinary record”. The partner, who the Financial Times has decided not to name, left Deloitte in 2018.
Deloitte said: “We acknowledge and regret that aspects of our audit work for this entity did not comply with the relevant standards.”